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DIRTT Industry Perspective

investor

I'm an investor who is taking a look at investing in DIRTT and I was wondering what architects think of the products? There are a lot of investors who sit in their offices all day playing around in excel but i've often found you learn more about a company by talking with a few people who use the product and those conversations are invaluable. I have a bunch of questions which are below for anyone who would be gracious enough to answer any of them.

1) How well known is DIRTT within the community? Has their popularity been changing?

2) What are pro's and con's of the products?

3) Are their products of similar quality? Do you see a lot of newer firms with similar quality?

 
Aug 27, 15 1:37 pm
chigurh

I like dirt, it is usually on project sites...you have to dig it up a bit to place foundations.  spoils are expensive to move, dirt really varies from lot to lot, it is a good idea to get a geotechnical engineer involved to test your dirt.  dirt is always a sound investment; architecture is questionable.

Aug 27, 15 2:30 pm  · 
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archanonymous

I know of it. 

It is expensive but good. 

Most similar products compromise on quality.

 

I would be a little worried that they are not differentiating themselves enough from their competitors.

Aug 27, 15 4:03 pm  · 
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Carrera

Red Flag #1 - Fun company, but no chance their claim of “….same price or less than conventional construction” holds water. You can buy a boatload of drywall & Formica for what their stuff cost. Their stuff requires special knowledge to install; escape convicts can install drywall partitions, and do.

Red Flag #2 - Nothing new just a new way to deliver it…remember Warren’s Rule – “Only invest in companies that have a durable competitive advantage”. There are more companies that made this stuff that are dead than alive, new ones pop up in China every year. Never buy into a building component that can be put in a shipping container, Warren bought a brick company.

Red Flag #3 - This is a North American company with no global presence or manufacturing; the next recession could kill it.

Not saying the bird doesn’t fly, it’s just that with 3 Strikes you’re Out with investments, maybe one strike these days.

Aug 27, 15 5:45 pm  · 
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*** INVESTMENT SPAM. ***

That is all.

Aug 27, 15 6:13 pm  · 
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investor

This isn't investment spam trying to convince people to invest in DIRTT. If you direct message me through the site I'll give you my contact info and you can see I work for an investment fund. 

Carrera: I have no building experience but I also don't buy that it's cheaper than drywall on a wall to wall basis. That said it might not be as expensive as one intuitively thinks as they claim it materially cuts down on labor needed during construction and reduces waste. It might also be cheaper if you were constantly adjusting the office layout and didn't have to tear down and redo walls repeatedly. It seems popular with some technology companies or hospitals as they can change the layout every couple years much faster and with much less labor and materials than would be required for traditional construction. We are going to get a new office in next 12 months and even if this was materially more expensive than drywall I do like the idea of being able to change offices to conference rooms or vice versa in 18 months without bringing in construction crews and getting dust in my eyes. 

About durable competitive advantages, are there companies who are offering similar products with similar functionality? From what I can tell the other modular wall's look like crap or lack the features as archanonymous said. I'm sure the competitors watch the DIRTT walls and copy their functionality but that takes time and there are alot of companies who've been very successfully by continually innovating and being 18+ months ahead of their competitors. 

About the recession surprisingly they grew through the last recession in 08 & 09 and they have a very strong balance sheet, don't worry about them closing shop anytime soon. 

Again I'm not familiar with construction or architecture so I'm interested in what anyone thinks. If the product really is great and will be more widespread I'd love to hear it but if the product also sucks and is cost prohibitive, and/or there are 24 companies making the same thing, I'd love to hear that as well. Just interested in what people in the industry think about it. 

Aug 27, 15 6:32 pm  · 
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chigurh

OL DIRTTY BASTARD!

Aug 27, 15 6:40 pm  · 
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curtkram

Isn't there a tax advantage to dirtt walls over stud walls, since it counts as furniture?

The cost advantage comes from it's ability to be reconfigured, as investor suggests.  If you use it for about 3 different layouts, it should probably become the less expensive option compared to gyp.

I worked with them years ago.  Very nice people.  I haven't seen much usefulness or demand for their product in most cases.  I don't think this is a hidden gem that will blow up, but it's probably as good of an investment as any.

What's their p/e?  That's probably more important than the other comments here.

Aug 27, 15 6:51 pm  · 
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*** INVESTMENT SPAM. ***

I work for an investment fund. 

Ha! Nailed it. 

Aug 27, 15 7:07 pm  · 
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zonker

One of my classmates from arch school, is the bay area marketing director at DIRTT

Aug 27, 15 7:22 pm  · 
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Carrera

Investor – OK, I said they can fly, there is a use for it, long history of this type of product, but what’s new to the end user who is paying for it? Much of the touted innovation is in the designing (software), who benefits from that? I think Warren has another rule about companies that base their innovation on software.

Another negative is that in our business everything gets bid out, the low bid is king…you have the numbers I don’t; a good comp would be Steelcase who bought the gold standard firm Hauserman in 1999. Hauserman invented the product in 1913 and didn’t survive…I would do a comparable on market share and growth on both since 1999.

Hauserman was king because this type of thing is a long term investment to end users and people gravitated to them because you could get replacement panels and parts over the long term. Today more people are shy about these products because that benefit has a history of getting lost.

Some positives:

You’ll need to check, but I think things like this can be classified as furniture (used to be) and expensed at a faster rate, that is a positive, it’s reuse is a long term positive, DIRTT is well designed and yes there is a lot of junk, but most all of their competitors benefit from these same positives.

Being good is a positive, good design is too, innovation is fun and attracts people, but none are “durable” advantages.

Depends if you are a wave rider or a long term investor…..if long remember that Warren is long on bricks & drywall.

Aug 27, 15 7:30 pm  · 
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investor

Carrera: Warren has avoided technology always because he doesn't understand it which is a good rule to avoid things that you'll never understand (granted he has made a couple investments in tech recently). Best company I've ever looked at is involved in software and that business has made investors 30% returns a year since the early 90's, really an incredible business. Yes I'm going to chat with Steelcase too as they could be interesting. And yes I believe it does have tax advantages as the other poster also suggested. 

Innovation can be a sustainable competitive advantage especially if it gets to the point where the brand is highly valued and people are willing to pay a premium for your products (I believe Apple makes more money than everyone else in the phone industry combined). With this case it's very difficult to dislodge an incumbent with scale if the margins that leader is making aren't very high. If we say in 5 years DIRTT has more scale than anyone else, and has lower production costs, it'll be very difficult to dislodge them given how deep pocketed DIRT is and they aren't making incredible profits anyway. If a new competitor comes in they'll have to price below what DIRTT is charging to get people to go with an unknown brand ,and they'll have materially higher production costs due to their lack of scale, so they would likely lose money for a long time under the best case scenario. DIRTT is running at a 7% pretax margin and what they would likely do if they feel threatened by a new entrant (this is the smart thing to do) would be to just cut their own prices and run at breakeven or even a loss for a couple years. If DIRT is running breakeven this new entrant, who has higher costs and needs to price lower, will be hemorrhaging cash and should close sooner rather than later when their funding dry's up. 

Miles: We don't own the stock and are not attempting to push people into it. In fact I would suggest everyone avoid it given it's a very speculative company whose price moves up and down 30% regularly. 

Curtkram: Yes there is the tax advantage and the PE is almost 30x on 2015 #'s. It is expensive and this is a very risky investment. I'll be working on this the next 3 weeks and will post high level thoughts after I finish my work for anyone interested. 

Xenakis: Any comments on how smart that person is? Always interested in learning about the execs at any given company. I would guess the Bay is one of their best markets given all the tech companies who like the products.  

Aug 27, 15 8:04 pm  · 
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curtkram

warren is long on carpet and brick.  i don't think he's in drywall?  he's long on a furniture company, and dirtt is essentially furniture, though their product is commercial and i think warren's furniture company is residential.

i don't think warren is opposed to software.  he said he didn't get involved in the dot com boom because he didn't understand it, but he seems to be friends with bill gates.  dirtt is an easier company to understand.  they have a product that people buy and install in places.  they have sound management and all that.

on that note, if the stock is trading at a high price, i don't see why it would be attractive.

Aug 27, 15 9:26 pm  · 
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Carrera

Investor - Not sure now on the Steelcase/ Hauserman deal, better check. The Hauserman used in the U.S. was founded by E. F. Hauserman in Cleveland, OH in 1913 and went bankrupt in 1989. Steelcase bought the “product rights” but there is a Clestra-Hauserman in Europe that is still active making walls, not sure of the connection, yet the Steelcase website says they bought Clestra-Hauserman.

In any event I checked the Steelcase site and you can find “Wall Panels” just above “Rugs”.  Point is their advantage is that they sell entire interiors through a network of interior systems dealers and often bypass architects to get inside universities, corporations and hospitals and their facility managers…the advantage is they get their nose under the tent  selling chairs and the next thing you know they are selling walls. They too have planning software; in fact they were pioneers in this regard.

Back to Warren. If everyone invested like he did there would only be 50 companies in the country, so there is a lot more to the game, as you point out. I read a lot of “Warren” and distinctly remember someone asking him about the likes of Herman Miller & Steelcase, don’t remember, but know it wasn’t good (in his opinion).

One of the changes in the past 25 years is glass. When I was active using Hauserman 90% of the panels we used were solid, now they are 90% glass. Another emerging trend in offices is a growing skepticism about the “open office” concept and believed adverse effects on workers, keep an eye on that.

I am an investor, in real estate, but would be interested in learning how this unfolds.

Note: Warren Buffet owns 40,000,000 shares of USG (United States Gypsum Corporation), albeit 1%.

Aug 27, 15 10:54 pm  · 
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investor

Curtkram, I agree it's expensive but if something trades at 2x the PE of the market but it manages to grow profits 5x in 4 years you'll typically do very well, I'm going to focus on how those earnings grow over the next 3-5 years. 

Carrera: Thx for the info and it's clear I'll have to spend a while looking at Steelcase given their foot in the door with furniture. Will spend a couple more weeks learning about DIRTT then will meet with Steelcase too to see how focused they are on interior walls.  

Aug 30, 15 8:06 pm  · 
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